As a franchisor, you are probably aware that new franchisees can often require a bit of coaching. What you might not be aware of, though, is how critical that coaching can be: Every year, hundreds of new franchises fail, and many of those failures can be attributed to a franchisee’s lack of financial understanding.
In this article, we will discuss 2 important topics that franchisors should be discussing with their franchisees — benchmarking and bookkeeping, specifically — and then go into more detail about how an accounting professional can help you give new franchisees the best chance at financial success.
The importance of benchmarking
Put simply, benchmarking is the process of understanding a franchisees’ performance and how it relates to the performance of other franchisees, both in your industry and outside of it. In order to effectively benchmark, franchisors usually follow 4 distinct steps:
- Identify the aspects of a franchisees’ operation that are most impactful. Depending on which industry your franchisees belong to, the most important kinds of data to benchmark can vary: Food manufacturing businesses will probably be very concerned with inventory spoilage and turnover rate, whereas those areas won’t be as important to small box franchises, for instance. As a franchisor, you should help your franchisees identify which areas of operation are most important to their businesses, and set out to benchmark data related to them.
- Identify which competitors and industries to benchmark. In order for benchmarking to be an effective tool, a franchisor needs to identify which specific businesses to benchmark. It won’t do your franchisees any good to collect and analyze data from a competitor who is soon to fail, for instance, or from a business in an unrelated industry. As a franchisor, you should be actively seeking companies whose performance you want to compare your franchises to, whether because they are operating so successfully or will provide some other insight.
- Collect data. The meat and bones of benchmarking is the process of actually collecting data. It can be difficult, though, to know which kinds of data are most significant, especially if you aren’t a financial expert. Consulting with a virtual accounting professional should be a consideration during this step of the benchmarking process. Professional accountants are trained in the collection and analysis of financial data.
- Put together the bigger picture. Once you have identified which companies to benchmark your franchises against and collected relevant data about their operations, it is time to put together the kind of big picture insights that are the hallmarks of diligent benchmarking. During this step a franchisor might find that, compared to competing franchises, their inventory management isn’t nearly as efficient, or that they are spending far more money on payroll, for example. This step is when franchisors reap the rewards of the benchmarking process, and it should produce actionable results that help franchisees with day-to-day operations.
Benchmarking is one of the most effective ways that a franchisor can help to improve the performance of their franchises. As a franchisor, you should be coaching your franchisees on how to benchmark, and describing the importance of doing so.
The importance of bookkeeping
Bookkeeping is a similarly important coaching point for franchisors. Why, specifically, is timely and accurate bookkeeping so crucial for successful franchise operations, though?
First and foremost, accurate bookkeeping ensures that a franchisee doesn’t need to guess about the financial situation of their business. Without diligent bookkeeping, a franchise owner can’t know exactly how much income they have made over a given period, for instance, or exactly what expenses they have undertaken. Timely and accurate bookkeeping provides owner’s with a kind of snapshot of their business’ financial health that is based on hard, considered financial data.
Second, rock-solid bookkeeping is the basis for sound financial decision making. A franchise owner who isn’t sure how much cash they have on hand at any given time can’t realistically make an informed decision about whether or not to purchase new equipment, for example, or spend more money on marketing. And being financially well informed is especially critical for a franchisee who is looking to court outside investment: Potential investors want to know that a business has carefully considered the financial implications of any partnership, and being able to present those investors with a professionally kept balance sheets and financial records is a key part of instill this kind of confidence.
Help with following proven processes
If you are a franchisor, you no doubt have a sales process that has proven to be successful for your franchisees. New franchisees need coaching on how to best follow this process, though, and that coaching can often involve complex financial topics. It can be difficult to describe to a new franchisee what a key performance indicator (KPI) is or how to interpret benchmarking data, for instance, if you aren’t a financial professional yourself.
If you are looking to improve the effectiveness of your coaching relationship with new franchisees, an accounting professional – whether a virtual bookkeeper, controller or CFO — can be a huge help. These professionals are trained to interpret and explain financial data, and they can help your new franchisees get off to a solid financial start.
How Krieger Analytics can help
So, now that you know what areas and processes you should be coaching your franchisees in, you might be wondering about your next steps. Hiring an accounting professional is a way to ensure that your businesses’ most important coaching topics, like benchmarking and KPIs, are being diligently considered and clearly explained to new franchisees. You may be worried, though, that you don’t have the means to hire a professional accountant. And rightfully so: A full-time accounting executive can demand a 6 figure salary, and most small businesses don’t have 40 hours of high-level accounting work to be done every week. Consider, instead, outsourcing the services of a virtual CFO. Even 10 hours worth of consultation with an outsourced CFO in a month can mean tangible benefits for your business’ financial health.
Krieger Analytics specializes in outsourcing accounting services for small businesses, from bookkeeping to virtual CFO and controller consultations, and our background in entrapuernship and finance means we know what running a business entails. Our goal is to meet your small business accounting needs without burdening you with the costs of a full-time accounting staff. And, we understand your position as a small business owner, because we have experience running businesses ourselves.
Have questions about anything discussed in this article, or interested in what valuable insights a CFO and former franchisor has for your business? Conversations are free, so don’t hesitate to reach out at [email protected], and let us explain how our services could be the right fit for you.